By Phil Eskeland
Yesterday, the Department of Commerce released the latest monthly trade statistics, including information related to the 3rd Quarter services data (January through September). While most of the media and President Donald Trump focused on the near record-setting level of U.S. imports and the higher trade deficit globally, the trend with respect to South Korea runs counter to this narrative.
First, U.S. exports of merchandise goods to the Republic of Korea (ROK) continues to outpace last year’s level. For the first 10 months of this year, U.S. merchandise exports to South Korea are up 13 percent as compared to the same time period in 2016. As a result, the year-to-date (YTD) merchandise trade deficit between the U.S. and South Korea declined by 18 percent. If present trends continue for the final two months of 2017, then the U.S. will set a record level of merchandise exports to Korea, reaching nearly $48 billion.
Second, the U.S. continues to hit repeated record level of service exports to Korea, further expanding the U.S. trade surplus in this sector. U.S. services exports to Korea have grown every quarter this year in comparison the same time periods in 2016. One reason for this expansion is the continued dramatic increase in the number of South Koreans who visit the United States, which is counted as a service export. According to the National Travel and Tourism Office at the Department of Commerce, the number of South Koreans who visited the U.S. during the first six months of this year increased 18 percent as compared to the same time period in 2016. Between January and June, 2017, nearly 1.1 million South Koreans came to America for business or vacation purposes, making that nation now the sixth largest source of foreign visitors to the United States. In fact, 88 percent of South Korean visitors travelled to the U.S. for pleasure, making that nation the third largest source of international tourists to vacation in America. The typical South Korean traveler spent an average of $4,370 during their visit to America in 2016, resulting in a total economic impact of $8.626 billion on the U.S. economy. As a result, the YTD 2017 (January through September) U.S. trade surplus in services to Korea continues to outpace the previous record-setting level at $7.849 billion. As a result, when both goods and services statistics are combined, it shows a dramatic 41 percent decrease in the YTD overall trade imbalance between the U.S. and South Korea.
As South Korea nears completion of its own internal process for renegotiating the Korea-U.S. Free Trade Agreement (KORUS FTA) with the United States, both sides should not let the rising U.S. trade deficit with the rest of the world influence the talks, particularly as the bilateral trade deficit between the U.S. and the ROK has significantly declined since Donald Trump became president. Negotiators on both sides should use this opportunity to make good-faith efforts and compromises to devise appropriate modifications to update the agreement to open more markets to competition, but not to threaten to withdraw from KORUS or walk away from the talks when the predicate for that tactic (i.e., a growing U.S. trade deficit with Korea) no longer exists.
Phil Eskeland is Executive Director for Operations and Policy at the Korea Economic Institute of America. The views expressed here are his own.
Photo from Wilson Hui’s photostream on flickr Creative Commons.